Is Multi-Manager Changing?

Multi-Manager funds may be turning into a different kind of vehicle because of the condition of the markets, says Defaqto's Fraser Donaldson.

Donaldson, Principal Consultant for Investments at Defaqto, believes that there are two areas where we are seeing a change. He said: "It has been taken for granted that part of a Multi-Manager's job is to select the best ‘active' fund managers for their portfolios, but more recently we have seen an increase in the use of ETFs. These are low cost, passive index funds, so are not actively managed."

Although Donaldson said this is not necessarily a bad thing, the fans of active management should be aware that this is happening.

The other area in which Donaldson believes Multi-Manager is changing is in cash. He added: "Fund managers are more regularly upping the weighting of cash at the moment. This is a contentious issue, with many advisers believing that it is up to them to allocate their clients cash weightings. There is no doubt that timely movement to cash may well improve relative performance, but the problem lies in the timing of these moves. If a fund manager is prone to using cash, there will be times that market rises will be missed. While the use of cash is not a good or bad thing, it is an additional risk that the investor needs to be aware of."